Factors of Production

Each business has its own mix of the four factors of production, vis-à-vis, natural resources, labor, capital, and entrepreneurship.

Natural resources refers to everything useful in its natural state as a productive input including agricultural land, building sites, forests, mineral deposits, and so on. Natural resources are basic resources required in any economic system.

Labor is critically important. It refers to everyone who works for a business, from the company president to the production manager, the sales representative, and the assembly line worker.

Capital is defined as the funds necessary to finance the operation of a business. These funds can be provided in the form of investments, profits, or loans. They are used to build factories, buy raw materials, hire workers, and so on.

Entrepreneurship is the taking of risks to set up and run a business. The entrepreneur is the risk taker in private enterprise system. In some situations the entrepreneur actively manages the business; in others this duty is handed over to a salaried manager.

All four factors of production must receive a financial return if they are to be used in a private enterprise system. These payments are in the form of rent, wages, interest, and profit. The specific factor payment received varies among industries, but all factors of production are required in some degree for all businesses.

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